Debt, its all around us and right now its what has contributed to the economy being the way it is.
But you must remember that not all debt is bad! There is good debt and bad debt.
But how do you tell the difference?
A simple test - will the item you bought add wealth or income over time?
Let me explain my thoughts on this...
Good debt is characterised by these two points.
• The interest on the debt is tax deductible.
• The purpose of the debt is to develop an income stream or add to your wealth.
Some examples are:
• Investment property loan
• Business loan for hiring a salesman
• Business loan for buying stock
• Loan for shares or managed funds
• Even a home loan adds value to your portfolio, growing available
equity but is an exception as it is not normally tax deductible.
Some would argue that a home loan is bad debt but lets leave this
one open.
Bad debt is characterised by:
• Not tax deductible
• Is used for consumer spending – Big Screen TV, Car, Holiday etc
Last update : 18-10-2008 15:46
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